2017 Shareholder Review HT&E LIMITED ABN 95 008 637 643 In May 2017, APN News & Media Limited changed its name to HT&E Limited (HT&E), marking the Company’s final shift away from traditional publishing and reflecting HT&E’s repositioned portfolio of leading, high-quality metropolitan media assets across radio, outdoor and digital. Uniquely placed, HT&E continues to operate in growth segments of the media landscape and brings together a combination of ‘away from home’ assets – Australian Radio Network (ARN), Adshel, Conversant Media, Gfinity Esports Australia (Gfinity Australia) and Emotive. These powerful channels can work together to more effectively target, engage with, and drive behaviours of our consumer audiences while they’re on the move. HT&E’s media and entertainment offering provides unprecedented scale, content creation, and insight-led innovation, to deliver a better proposition for audiences and advertisers. In this report About HT&E 1 Chairman’s Report 2 Chief Executive Officer’s Report 4 Operating and Financial Review 6 Corporate Social Responsibility 14 Senior Management Team 18 Board of Directors 20 Five Year Financial History 22 Corporate Directory 23 HT&E owns Australia’s #1 national metropolitan radio network and the #1 street furniture business in Australia and New Zealand. Results snapshot In 2017, HT&E continued to focus on its core assets, supported by its expanding digital portfolio and data capabilities, and a fresh trade proposition to deliver #1 integrated solutions for advertisers. National Radio Network ARN improved its performance in the second half of the year, regaining the number one network position, growing market share and improving its digital broadcast 0.97x and commercialisation capabilities. Adshel continues to lead the way in street furniture Net debt to EBITDA is down from 1.2 times in 2016 to digitisation and innovation, renewing existing contracts 0.97 times in 2017 and securing the new Metro Trains Melbourne contract for seven years, while also enhancing its data and smart cities leadership position. The integration of Conversant Media and ARN is 7cps progressing well, leveraging digital opportunities and Dividends paid during 2017 incremental revenue across the Group. A further 4 cents per share has been declared and will HT&E also announced its entry into the global growth be paid in April 2018 sector of esports with the launch of Gfinity Australia, enabling HT&E to further expand its digital audience base and diversify revenues. 2 HT&E LIMITED SHAREHOLDER REVIEW 2017 I cannot emphasise how important it is to be operating in strong and growing sectors, at a time Chairman’s when there is significant disruption to the media industry, where social media and search companies Report are dominating advertising spend and where new challenges are presented every day. There is no doubt that radio and outdoor assets provide significant opportunities as they continue to grow audiences and remain attractive to advertisers. The transformation of the Company was signalled by our name change in May, to HT&E. For the first time, a media company in Australia brought together the ‘away from home’ channels of radio, outdoor and digital – enabling advertisers to better engage, influence and drive audience behaviour as we connect and interact with them, wherever they are. Focus Our overarching strategic focus is unchanged, and is centred on our four objectives – to grow our audience base, diversify revenues, expand digital and data capabilities, and optimise integration – all while delivering acceptable, long-term returns to shareholders. It was a new beginning for HT&E in 2017, as In 2017, despite some strong progress in many for the first time we areas, the financial performance of our businesses was not as strong as we would have liked, and I operated our core can assure you that the Board is committed to radio and outdoor delivering improved results and superior returns assets as 100 per cent for shareholders. We have set the focus for the owned businesses. Company for 2018 and beyond, and have a highly experienced management team. Operating in growth sectors 2017 was a big year for the media industry with historic changes to Australia’s media laws passed by Federal Parliament in September, delivering the largest reforms in nearly three decades. We welcome the reforms, in particular the removal of broadcasting licence fees. The media segments we are in give us great confidence. Radio has demonstrated long-term growth in both listenership and revenue and we are confident that will continue. The sector is successfully developing new infrastructure and technologies to further its business model into the future, and the industry continues to work closely together for the benefit of its listeners and advertisers. There is no doubt that out-of-home, and street furniture in particular, is the segment to be excited about, because of its significant growth potential. As digitisation increases and data capabilities improve, advertisers will benefit from more flexibility and innovation. 3 HT&E is in attractive sectors which we selected for their growth potential. We have a strong balance sheet and the experience and ability in the management team to execute our strategy. The out-of-home market does have a number of The year ahead significant contracts that are extremely attractive The Board believes HT&E is well positioned with because of their scale and longevity. While we are its current businesses. 2018 is all about delivery keen to grow, we expect our management to be and operational focus, driving EBITDA, with good disciplined when it comes to submitting tenders capital management, which will in turn yield better for these major contracts, which must always shareholder value. be assessed on a commercial basis. We assess every contract we compete for and evaluate HT&E is in attractive sectors which we selected any alternative uses for capital, the business key for their growth potential. We have a strong performance indicators (KPIs), and standards that balance sheet and the experience and ability in we want to meet. We are mindful that winning the management team to execute our strategy. uncommercial contracts does not deliver value We will consider opportunities, and “bolt ons”, to for shareholders. our radio, outdoor and digital offering, providing Australian Taxation Office dispute they align with our four objectives and deliver HT&E continues to be involved in discussions acceptable returns. with the Australian Taxation Office pertaining to On behalf of the Board, I would like to thank our the New Zealand Branch matter, as previously shareholders for their ongoing support and all disclosed. Amended assessments were received HT&E employees for their commitment and work in late January 2018. The Company intends to fully for the Company. pursue this matter, and we remain confident in our position. Final resolution of this matter could take several years. Payment of dividend Dividends were reinstated in 2017, with seven cents per share paid during the year. Our dividend Peter Cosgrove policy has a payout ratio of 40-60 per cent of Chairman underlying NPATA when leverage is less than 2.0 times EBITDA and, accordingly, in February 2018 the Board declared a fully franked final dividend of 4 cents per share. Our balance sheet position is strong, with net debt less than 1 times EBITDA at 31 December 2017. 4 HT&E LIMITED SHAREHOLDER REVIEW 2017 by $2.3 million, with the EBITDA margin contracting slightly to 38 per cent. The EBITDA decline of Chief $6.7 million in the first half was offset by strong second half growth of $4.4 million. Executive The business is determined to extend its ratings lead in 2018, launching new breakfast shows on KIIS 101.1 and GOLD104.3 in Melbourne, a new breakfast show Officer’s for 96FM in Perth, and a new national Drive show across the KIIS network, bringing fresh energy and commercial opportunities to the network. They will Report join our established on-air stars across the network to drive further ratings and deliver better value for clients. While ARN remains focused on strengthening its core broadcasting brands, significant progress has been made future-proofing the business by creating the future of audio entertainment in Australia. With an unrivalled multiplatform strategy, ARN has a broadcasting, digital and social model that is growing existing and new audiences, commercialising this multiplatform content and developing new revenue opportunities and integrated solutions for advertisers. Adshel Adshel had a strong financial year in 2017 in both HT&E is uniquely placed in the Australia and New Zealand, with overall revenue up media market with an expanding 7.5 per cent and EBITDA up 11.3 per cent. portfolio of leading, high-quality New Zealand performed particularly well, with revenue metropolitan assets across up 24.8 per cent and EBITDA up 24.1 per cent, while radio, outdoor and digital. in Australia, the loss of the Yarra Trams contract, announced in October, began to impact performance Each of our business units in quarter four. Despite this setback, revenue and operates in sectors of the EBITDA growth for the year was 4.9 per cent and market that continue to grow 7.6 per cent respectively. and each is focused on the The business is actively pursuing new contracts as it optimisation of its performance. continues to demonstrate its leading street furniture model by delivering exceptional revenue performance with world-class innovation and customer service Our powerful assets work together to connect initiatives. We were particularly pleased to secure the with audiences on the move, and better Metro Trains Melbourne contract for seven years, influence consumer behaviour with greater strengthening Adshel’s coverage across the rail targeting capabilities. commuting audience in Melbourne. Our businesses Adshel’s digital roll-out continued, albeit impacted in Australian Radio Network (ARN) Australia by the Yarra Trams contract process and Regaining and retaining the number one outcome.